Arizona Votes To Eliminate Net Metering

At the beginning of the residential rooftop solar revolution, net metering was the magic elixir that made it possible for homeowners to afford solar panels on their roofs. It worked like this: any electricity generated during the day that was not used to power the home could be fed back into the grid and the local utility company paid for it at the same rate they charged other retail customers.

Homeowners loved it. Solar companies like SolarCity loved it. The money generated by selling electricity back to the grid could be used to help pay for the system. Everybody was happy. People were getting “free” electricity from sunshine. Carbon emissions were lowered in the community at large because utility companies could burn fewer fossil fuels to meet demand. It was a win-win situation.

Not everyone loves net metering

Well, actually, utility companies didn’t love it. It was sort of a novelty at first and when less than 1% of all electricity on the grid was coming from residential systems, it wasn’t much of a problem. Besides, it let utility companies burnish their image as folks who cared about the environment.

But as the number of rooftop solar systems increased, utility companies decided they hated the idea of people making their own electricity. They invented all sorts of cockamamie reasons why paying people for the electricity they generated at home was bad for business, bad for other utility customers, and bad for the environment. It’s astonishing what public relations types can come up with to justify a position their bosses like.

Let’s try to be fair to the poor utility companies. They have sunk trillions of dollars into this thing called the grid. It starts at the pole nearest your house and extends back over many miles through a series of transformers and substations to the utility company itself. Utility companies are interconnected by a welter of high voltage transmission lines that make it possible for electricity generated in Canada to be sold to customers in New York City.

The Utility Business Model

By law, a utility company’s income is a fixed rate of return based on its total investment. That rate of return is often less than what can be obtained in financial markets, but because it is guaranteed, people who buy the bonds utilities sell are reasonably certain their money is safe. The whole thing works beautifully as long as the electricity is flowing outward from the utility to its customers. Once the flow is reversed, the utilities start to suffer a loss of income and that is something they hate.

The arguments the utilities offer suggest that people with rooftop solar are not contributing enough money to maintain the grid. They are, in effect, freeloaders who are putting an extra burden on other utility customers. And because people with rooftop solar are by definition homeowners, they are characterized as elite snobs who are making life harder for those poor unfortunates who have to live in apartment buildings. So it’s a social justice thing, too, if you listen to what the utility companies have to say.

Grid Scale Vs. Rooftop Solar

Utilities also argue that society can get more bang for its solar power buck by building large grid scale solar farms rather than slapping solar panels on every roof in sight. The numbers support that argument. The cost of grid scale solar is plummeting and on a per kWh basis is significantly lower than rooftop solar electricity.

But here’s the countervailing argument. Grid scale solar goes to the utility company to be distributed over the grid. What people pay for that electricity is something they have no control over. It is up to public utility commissions to decide what is fair. Rooftop solar energy is in fact free, once the cost of the equipment is taken into account. Grid scale solar does not insulate customers from future rate increases. Rooftop solar does.

Arizona Kills Net Metering

This week, the Arizona Corporations Commission — which sets utility rates in that state — voted to eliminate net metering entirely. True, the change will not effect existing rooftop solar customers until 2036 and new customers will see their net metering income decline over a 10 year period. Last year, the Nevada PUC arbitrarily and summarily eliminated all net metering including for those who already had solar systems. That bit of regulatory stupidity, which resulted from pressure applies by NV Energy, caused SolarCity and other residential solar companies to shut down operations in Nevada, which resulted in hundreds of people losing their jobs.

At least Arizona is taking more of a phased approach. But that’s not enough to satisfy solar advocates. The Alliance for Solar Choice said the commission’s decision “disregarded the full, long-term value that rooftop solar brings to Arizona and the long-term certainty that Arizonans need when contemplating a solar investment.”

Here’s Why Net Metering Doesn’t Matter

Here’s why none of this matters. Things have changed dramatically in the solar industry over the past 10 years. Back then, sending electricity back to the grid and getting paid for it was considered the greatest idea since sliced bread. Today, residential energy storage is changing the economic calculus completely. No longer will the grid serve as a battery — you put electricity in during the day and take it back out at night. Now people will store their own electricity right inside their own homes and use it whenever they need it.

Here’s what the utility companies don’t understand. By cutting off income from net metering, they are driving the market for residential solar coupled with in home battery storage. To use an allegory, as Obi Wan Kenobi told Darth Vader, “If you strike me down, I will become more powerful than you can possibly imagine.” Residential storage introduces the concept of “time shifting.” In other words, generate your own electricity during the day, use your own electricity later after the sun goes down.

What’s the result? Utility companies will sell a lot less electricity. If they were worried about a loss of income before, they should be terrified about what the future has in store, and all because they were too greedy to share a little piece of the pie now. The revolution is not complete, of course. Battery prices are still relatively high and new technologies are on the horizon that will offer greater storage capacity at lower cost. But ultimately, utility companies will become largely irrelevant as more and more people generate their own electricity and share it local using microgrids.

Everything changes. Utility companies are rushing to bar the front door while their business is leaking out the back door. Soon, despite all their efforts, they will be left to wonder what happened to a business that everyone thought would go on and on largely unchanged forever. Progress is a bitch. Companies either need to adapt or die. Many of the most obdurate utility companies are dead already. They just don’t know it yet.

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